COMPANY NEWS

COMPANY NEWS; 3Com Shares Plummet On Analysts' Remarks

By LAWRENCE M. FISHER,

Published: May 29, 1993

SAN FRANCISCO, May 28—
Shares in the 3Com Corporation, a leader in computer networking devices, lost about 30 percent of their value today after two securities analysts lowered their ratings on the company's stock.

3Com shares plunged $11.50, to close at $27, on volume of 13.8 million shares. The stock was the biggest percentage decliner in Nasdaq trading.

Traders said the stock fell after Thomas Erickson, an analyst with Wessels, Arnold & Henderson, removed the stock from his Minneapolis firm's list of recommended buys. Mr. Erickson's assistant said he would not comment on the move. Merrill Lynch's Action

Merrill Lynch & Company, meanwhile, lowered its near-term rating on 3Com from above average to neutral but maintained an above-average rating for the company's long-term prospects. Joseph Bellace, a Merrill Lynch analyst, did not return telephone calls seeking comment.

Other analysts said there was concern that supply had finally caught up with demand for 3Com's core product, an adaptor card that allows personal computers to connect with a network. Some said the pummeling of 3Com's shares may also have reflected investors' uncertainty about all technology companies after the Dell Computer Corporation reported surprisingly poor earnings this week.

"Nothing has fundamentally changed in 3Com's business," said Eric Benhamou, 3Com's president and chief executive, in a telephone interview. "It is puzzling to me they have changed their ratings, but have barely changed their estimates, just a few cents lower. We've not changed at all our projection of what we think we can do this year."

Mr. Benhamou said the company had increased production of its adaptors to the point at which they are now readily available, in contrast to an eight-week backlog earlier in the year, and that some distributors had reduced their orders in response. 'One-Time Channel Correction'

"This is a one-time channel correction," he said. "If you look at the underlying business -- what end-users are actually buying -- it continues to grow."

After a major revamping that returned the company to its original focus on networking hardware, 3Com had four consecutive record quarters. In its fiscal third quarter, which ended on Feb. 28, 3Com had earnings of $10.2 million, or 31 cents a share, in contrast to a loss of $4.4 million in the corresponding period a year earlier. Sales rose 52 percent, to $161.4 million, from $106.3 million.

Today's news reflects "a situation where you have resellers with inventory adjustments going on," said Cecilia Brancato, an analyst with Oppenheimer & Company. "It's really a kind of digestion issue," she said, adding that 3Com's "long-term fundamentals are still very much intact."